ITAD BIR Ruling No. 223-13

August 15, 2013 ITAD BIR RULING NO. 223-13 Article 10, Philippines-Netherlands Tax Treaty SGV & Co. 6760 Ayala Avenue 1226 Makati City Attention: Mr. Luis Jose P. Ferrer Partner, Tax Advisory and Advocacy Group Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on June 27, 2012, on behalf of SC Johnson Europe B.V. ("Johnson") , requesting confirmation that the dividend payments made by S.C. Johnson & Son, Inc. ("SJSI") to Johnson are subject to 10 percent preferential tax rate pursuant to the Convention between the Kingdom of The Netherlands and the Republic of the Philippines for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Netherlands tax treaty") . ECcTaH It is represented that Johnson , with address at Groot Mijdrechtstraat 81, 3641 RV Mijdrecht, The Netherlands, is a resident of the Netherlands within the meaning of Article 4 of the Philippines-Netherlands tax treaty based on the Declaration of Residence issued by the Director General of the Tax and Customs Administration of the Netherlands dated March 16, 2012; that based on its Incorporation of a Private Company, Johnson is company incorporated under the laws of the Netherlands with authorized capital of two hundred Dutch Guilders (NLG200,000) and is divided into two hundred shares with nominal value of one thousand Dutch Guilders (NLG1,000); that Johnson is not registered as a corporation or as a partnership in the Philippines, as shown in the Certification of Non-Registration of Company issued by the Securities and Exchange Commission on January 31, 2012 and that, on the other hand, SJSI is a domestic corporation duly organized and existing under Philippine laws, located at the 1077 J.P. Rizal, Makati City. It is further represented, as shown in the Secretary's Certificate issued by SJSI dated June 7, 2012, that on February 10, 2012 the Board of Directors of SJSI declared cash dividends in the amount of Php16.62 per share or approximately Php525,466,230.00 of the surplus profits of SJSI as of June 30, 2011 in favor of all stockholders of record as of February 1, 2012; that Johnson holds 26,000,000 common shares with par value of 10.00, which represent 82.24% of the outstanding capital of SJSI; and that these shares were acquired by Johnson through capital infusion; and that the dividends were remitted by SJSI to Johnson on June 29, 2012 as evidenced by sworn Certification issued by Citibank Manila. It is finally represented, based on the Sworn Statement by SJSI on June 4, 2012 that the transaction subject of the request for ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal of the taxpayer/s involved. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 ("Tax Code of 1997"), as amended, applies, in general, to dividends derived in the Philippines by a nonresident foreign corporation. It provides: "Section 28. Rates of Income Tax on Foreign Corporations . xxx xxx xxx (B) Tax on Nonresident Foreign Corporation . (1) In General. Except as otherwise provided in this Code, a foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to thirty-five percent (35%) of the gross income received during each taxable year from all sources within the Philippines, such as . . ., dividends, . . .: Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). DIAcTE xxx xxx xxx" However, Section 32 (B) (5) of the Tax Code of 1997, as amended, provides that any income may be exempt from income tax to the extent required by any treaty obligation binding upon the Philippine Government, thus: "Section 32. Gross Income . xxx xxx xxx (B) Exclusions from Gross Income . The following items shall not be included in gross income and shall be exempt from taxation under this Title: xxx xxx xxx (5) Income Exempt under Treaty . Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines. xxx xxx xxx" Thus, Article 10 of the Philippines-Netherlands tax treaty which you invoke, may apply to the instant case. It provides: "Article 10 Dividends 1. Dividends paid by a company which is a resident of one of the States to a resident of the other State may be taxed in that other State. 2. However, such dividends may also be taxed in the State of which the company paying the dividends is a resident and according to the laws of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed: a) 10 per cent of the gross amount of the dividends if the recipient is a company the capital of which is wholly or partly divided into shares and which holds directly at least 10 per cent of the capital of the company paying the dividends; ETIHCa b) 15 per cent of the gross amount of the dividends in all other cases. xxx xxx xxx 5. The term 'dividends' as used in this Article means income from shares, 'jouissance' shares or 'jouissance' rights, mining shares, founders' shares or other rights participating in profits, as well as income from debt-claims participating in profits and income from other corporate rights which is subjected to the same taxation treatment as income from shares by the taxation law of the State of which the company making the distribution is a resident. xxx xxx xxx" Based on the aforequoted provisions, dividends arising in the Philippines and paid to a resident of the Netherlands may be subject to income tax in the Philippines, but the rate of tax that may be imposed thereon shall not exceed: (a) 10 percent of the gross amount of dividends if the recipient of the dividends is a company, the capital of which is wholly or partly divided into shares, and which holds directly at least 10 percent of the capital of the company paying the dividends; and (b) 15 percent of the gross amount of the dividends in all other cases. Accordingly, inasmuch as Johnson is a private company in the Netherlands, the capital of which is wholly divided into shares, and since Johnson holds directly 82.24 percent of the capital of SJSI (which is actually more than the required minimum shareholding of 10 percent), such dividends to be paid by SJSI to Johnson are subject to income tax in the Philippines at the rate of 10 percent of the gross amount thereof pursuant to Article 10 (2) (a) of the Philippines-Netherlands tax treaty. This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue